In multiple sulfatase deficiency, a rare human lysosomal storage disorder, all known sulfatases are synthesized as catalytically poorly active polypeptides. Analysis of the latter has shown that they lack a protein modification that was detected in all members of the sulfatase family. This novel protein modification generates a 2-amino-3-oxopropanoic acid (C alpha-formylglycine) residue by oxidation of the thiol group of a cysteine that is conserved among all eukaryotic sulfatases, The oxidation occurs in the endoplasmic reticulum at a stage when the nascent polypeptide is not yet folded. The aldehyde is part of the catalytic site and is likely to act as an aldehyde hydrate. One of the geminal hydroxyl groups accepts the sulfate during sulfate ester cleavage leading to the formation of a covalently sulfated enzyme intermediate. The other hydroxyl is required for the subsequent elimination of the sulfate and regeneration of the aldehyde group. In some prokaryotic members of the sulfatase gene family, the DNA sequence predicts a serine residue, and not a cysteine, Analysis of one of these prokaryotic sulfatases, however, revealed the presence of the C alpha-formylglycine indicating that the aldehyde group is essential for all members of the sulfatase family and that it can be generated from either cysteine or serine, (C) 1998 John Wiley & Sons, Inc.